4 Defense Stocks That Could Pay Off Big in 2014

With no sequestration, flat Pentagon spending doesn’t look so bad

United Technologies (UTX)

United Technologies (UTX), which also reported fourth quarter earnings on Wednesday, beat on earnings and missed on revenue in the fourth quarter. The $1.58 EPS handily beat the $1.53 Wall Street expected, although its $16.76 billion in revenue missed analysts’ estimate of $17.09 billion.

The defense bill added in $72 million for more Black Hawk helicopters, which are manufactured by UTX’s Sikorsky unit. Still, diversified business lines are the biggest strength as Pentagon spending declines. UTX’s Otis elevator business and its Pratt & Whitney aircraft engines unit were both winners in the quarter and remain sources of strength for the company in 2014.

The big winner for UTX stock in the fourth quarter: Sales of commercial aircraft parts in the company’s UTC Aerospace unit, which rose a whopping 19%. UTX has a market cap of $105.3 billion and the lowest price-to-earnings growth (PEG) ratio in this group at 1.52.

UTX’s forward P/E of 17 is higher than average among defense stocks, and second only to Boeing’s 19. The current dividend yield of 2.1% is comparable to other defense stocks. Despite that valuation, UTX stock remains a solid pick thanks to its diversification.